Commonwealth v. Reading Savings Bank

137 Mass. 431, 1884 Mass. LEXIS 289

• Court: Massachusetts Supreme Judicial Court
• Decided: July 10, 1884
• Status: Published

Opinion

Devens, J.

In the cases which have heretofore been considered arising out of the frauds of Nathan P. Pratt, the treasurer of the Reading Savings Bank, it has been held that he had no right by virtue of his office and its general powers and duties, or by the authority of any recorded vote of the bank or its trustees, which therein appeared, to sell or transfer the securities of the bank. It has been further held, that there was no duty to third persons imposed upon him, by virtue of his office as treasurer, to state what the condition of a depositor’s account was, so as to enable them safely to take assignments or transfers thereof, and therefore, in all that had been done or said of this character, he must be deemed rather to have been the agent of the parties than of the bank, which was not to be held responsible for his false statements. Commonwealth v. Reading Savings Bank, 133 Mass. 16. Holden v. Upton, 134 Mass. 177. Holden v. Hoyt, 134 Mass. 181. Holden v. Phelps, 135 Mass. 61.

The principal question in the case at bar is whether the exhibition and delivery to the petitioner by Pratt, who was the secretary as well as the treasurer of this institution, of what purported to be a certified copy of a vote of the trustees authorizing the treasurer to discharge, assign, and release all mortgages belonging to the bank, enabled Pratt as treasurer to make to the petitioner, who acted thereon in good faith and paid the full face value of the mortgage, an assignment, the validity of which the bank is estopped to controvert, although in fact no such vote was ever passed by the trustees, (the word “ assign ” having been fraudulently interpolated into the recorded vote,) and although no part of the payment for the assignment of the mortgage ever came into the assets of the bank.

That the bank is not bound by fraudulent interpolations in its records, as to third persons who have not acted upon or been misled by them, is clear. Even if such interpolations were made by the recording officer, it would not be in his power by acts thus fraudulently done to impose upon it a liability which it had not assumed. Amherst Bank v. Root, 2 Met. 522. Holden v. Hoyt, ubi supra. It is obviously a different inquiry whether, when third persons have been deceived by such interpolations, or by certificates, made by the recording officer of such an institution, of votes which have been fraudulently altered, or which it is falsely pretended have been passed, and have in good faith acted thereon, the responsibility to which every institution is subjected by reason of acts done by its officers in the performance of their duties does not estop it from denying the accuracy of the record or of the certificate.

While a savings institution has but few of the characteristics of a commercial bank of discount and deposit, is intended as a convenient method of taking care of sums individually small, and has for its purpose a public advantage without any interest in the members of the corporation, yet it cannot be exonerated from the legal responsibilities involved in the business which it was created to transact, and must be liable for acts done by its officers in the regular performance of their duties. Reed v. Some Savings Bank, 130 Mass. 443. Commonwealth v. Reading Savings Bank, ubi supra.

Whether the interpolation of the word “assign” was made by Pratt himself in the record does not appear; it certainly was made with his concurrence. Nor does it clearly appear that it was made before the certified copy of the vote, upon which the petitioner acted, was exhibited and delivered to him. In the view we take of this case, neither of these circumstances is important. The board of trustees is by statute to meet at least once in three months, and, at each meeting, a record is to be made of the transactions of the board. St. 1876, e. 203, § 7. Pub. Sts. c. 116, § 18. Of this board, Pratt, as secretary, was the recording officer, and the by-laws of the corporation prescribe that the secretary “ shall keep a full, complete, and just record of all meetings of the corporation or of the board of trustees, in a book belonging to the corporation, and shall at all times submit it to the inspection of the members of the board, and such record shall be held in proof of the votes and transactions of the corporation.”

The business of this corporation necessarily demanded, not only that there should be a discharge and release of the mortgage securities held by it, as in the ordinary course of business they might be paid, but also that from time to time they be sold and assigned, as other securities should be deemed more suitable for investment, or as the demands made upon the bank by the depositors required that it should be provided with available funds. While its property was in the hands of the trustees, and subject to their control, they could not be expected themselves to conduct all its affairs, on account of the infrequency of their meetings, but it was their duty to provide therefor by giving proper authority and direction. What 'that authority and direction are, whether relating to the duties of the investing committee or the treasurer, those most cautiously dealing with the bank can only ascertain by examining the record of its transactions, which by law it is compelled to keep, or by relying on the certificate oí its recording officer. To examine the records would often be attended with difficulty to the person proposing to deal with the corporation, as he would be obliged to attend at the banking-house, and with annoyance to the bank itself, as such examination might disclose other transactions, either past or anticipated, which it might prefer not publicly to exhibit. If it be not within the official duty of the secretary to certify the records correctly, and thus entitle third persons to depend on such certificate, it is not easy to see how the ordinary business of such an institution could be conducted. It must be held that confidence is reposed in him by the trustees, not merely correctly to record their votes, but also to inform those entitled to inquire as to the record by proper certificate thereof. It thus follows, that, if false certification be made by him, the injury resulting therefrom must be borne by the corporation, whose officer he is, and that it must be estopped to deny the correctness of the vote as certified.

In Whiting v. Wellington, 10 Fed. Rep. 810, the question was, in a writ of entry to foreclose a mortgage, whether the demand-ant, who claimed by an assignment of a mortgage made by Nathan P. Pratt to one Kimball, under circumstances similar to those which appear in the case at bar, had a sufficient legal title to recover possession from the mortgagor himself. It was held that he had, and Lowell, J., in giving the opinion, said: “ Kimball, as a purchaser in good faith without notice, obtained a title by estoppel against the savings bank by virtue of the certificate of its recording officer that a certain vote was found upon its records.”

The analogies certainly lead to this result. It is well settled, as a general proposition, that a certificate of stock in a corporation, under the corporate seal and signed by the officers authorized to issue certificates, estops the corporation to deny its validity, as against one who takes it for value and with no knowledge or notice of any fact tending to show that it has been irregularly issued, so far at least as to make the corporation responsible for the value of the stock, where it is impossible, for any reason, to recognize the possessor as a stockholder. Thayer v. Stearns, 1 Pick; 109. Oakes v. Sill, 14 Pick. 442. Pratt v. Taunton Copper Co. 123 Mass. 110. Pratt v. Boston & Albany Railroad, 126 Mass. 443. In re Bahia San Francisco Railway, L. R. 3 Q. B. 584. Hart v. Frontino & Bolivia Cold Mining Co. L. R. 5 Ex. 111. New York New Haven Railroad v. Schuyler, 34 N. Y. 30. Merchants’ Bank v. State Bank, 10 Wall. 604. Warren County v. Marcy, 97 U. S. 96. San Antonio v. Mehaffy, 96 U. S. 312.

In the recent case of Moores v. Citizens’ National Bank, 111 U. S. 156, it appeared that A. lent money to B. for his own use, and, as security for its repayment, and on his false representation that he owned, and had transferred to A., a certificate of stock, to an equal amount, in a national bank of which B. was cashier, received from him such a certificate, written by him in one of the printed forms which the president had signed, and left with him to be used if needed in the president’s absence, certifying that A. was the owner of that amount of stock “ transferable only on the books of the bank, on the surrender of this certificate,” as was in fact provided by its by-laws. B. did not surrender any certificate to the bank, or make any transfer to A. upon its books, never repaid the money lent, and was insolvent ; and the bank never ratified or received any benefit from the transaction. It was held that A. could not maintain an action against the bank to recover the value of the certificate. But this case rests upon the ground that A. was bargaining with B. for the purchase or transfer of stock owned by him; that A. knew no certificate could be issued to her except upon a surrender of stock made by B.; that she relied upon B.’s personal representation that he had such stock, and she trusted him as her agent to make such surrender and to see the proper transfer of the stock made upon the books of the bank, which were prerequisites to the validity of her certificate; and that she did not stand in the position of one who received a certificate of stock from the proper officers without notice of any facts impairing its validity.

In the transaction we are discussing, there was no personal relation to the secretary or treasurer, so far as the petitioner was concerned. He believed himself to be dealing with the bank through its officer, the treasurer. He parted with his money to that officer only that it might be put by him into the vaults of the bank. The certificate of the vote as made by the secretary informed him that the treasurer was authorized to assign the mortgage. It was not important that the same person performed the duties of both offices. The petitioner was not the less entitled to rely on the certificate which stated the authority of the treasurer.

It is contended that the proper construction of this vote, as certified, is that the treasurer is simply designated thereby as the officer by whom assignments or discharges and releases are to be made, and that it" concerns only the form or method of transfer. But such construction limits the vote too narrowly. It was more than this. It gave an authority to assign, as it did to discharge. It could not be interpreted, indeed, as an authority to assign, except on receiving the value of the mortgage, any more than as an authority to discharge or release securities of the bank without payment thereof. But such value was in fact received by the treasurer. Nor, as thus construed, was the vote necessarily ultra vires. Whether it was or was not careful administration on the part of the trustees to permit these assignments to be made, and the mortgages to be thus turned into money, except under their own supervision or that of the investing committee, is certainly doubtful. But if they saw fit to confer this authority upon the treasurer, it was not so far beyond their power that one honestly dealing with him in the purchase of a mortgage is thereby to be deprived of the benefit of the assignment thereof.

It is further contended, that, if the bank is bound by the certificate of the secretary so far as to be estopped to deny its authenticity, an authority to assign must be treated as an authority to sell or transfer upon the receipt of the value of the mortgage, and that the transaction between the petitioner and Pratt, as treasurer, was an equitable mortgage or pledge of the mortgage transferred; that such transfer was not an absolute sale, but security only for a loan; and that this is shown by the fact that the petitioner was to reassign when his money was repaid to him, and, that he might readily return the mortgage, his own assignment was kept from the records. A mere authority to sell does not convey any authority to mortgage or pledge the property to which it relates. Loring v. Brodie, 134 Mass. 453. The alleged vote cannot be treated as authorizing the treasurer to pledge the mortgage securities of the bank. Whether the trustees themselves had authority to procure loans of money by such means, it is not necessary to consider. If they have, they did not attempt (assuming that they are estopped to deny the vote as certified) to confer it upon the treasurer. But the transaction as made by the treasurer cannot be treated as a pledge or equitable mortgage. It was a conditional sale, by which he reserved to the bank the right to repurchase this security on certain specified terms. There was certainly no loan to the bank; no contract was assumed to be made on its behalf to repay the money advanced by the petitioner. If the mortgage had depreciated in value, the petitioner could have no remedy against the bank. Were it shown by the terms of the agreement that the contracting parties intended a pledge, even if no obligation rested upon the party entitled to redeem, this latter fact might not be important, but it is otherwise where no such intention is revealed. Murphy v. Galley, 1 Allen, 107. The fact that the bank was entitled to repurchase the security did not render the transaction the less an actual sale. While Pratt paid the petitioner the interest next falling due on the mortgage note for the bank, and thus indicated an intention to repurchase it, he did not by this act assume on behalf of the bank to receive the sum advanced as a loan, or promise to repay it.

The assignment was perhaps defectively executed. While it was signed " Reading Savings Bank,” the in testimonium clause recites that “ I, Nathan P. Pratt, treasurer of said corporation, by vote duly authorized, hereto set my hand and seal.” This is not the adoption of the seal of Pratt as that of the bank (which indeed had no common seal), nor can the words of the in testimonium clause, which assert the seal to be that of Pratt, be stricken out. But in the case at bar this is of little importance : the note and debt secured were certainly transferred by the paper in question, and by the indorsement made on the note. If, by the defective execution of the assignment, the intention is not completely carried out, a court of equity should correct it, and treat the mortgage given to secure the debt as transferred with it. 1 Story Eq. Jur. § 166. Batesville Institute v. Kauffman, 18 Wall. 151. Morris v. Bacon, 123 Mass. 58.

The petitioner contends that, as Pratt represented the mortgage transferred to the petitioner as a first mortgage, the previous mortgage now actually held by the bank is therefore postponed to that transferred to the petitioner. But this is to carry the doctrine of estoppel too far. Even if the treasurer had been authorized to make an assignment of the mortgage, that authority would not have enabled him to bind the bank by the assurance that the mortgage was a first mortgage. His authority is limited by the vote under which he assumes to act, and this gave him no power to bind the bank by any guaranty. Bradlee v. Warren Five Cents Savings Bank, 127 Mass. 107.

Decree accordingly.